Technology distribution company Productive Business Solutions Limited (PBS) has sacked several executives from its Costa Rican business following the completion of a recent 2023 financial audit which resulted in the company having to restate the last two years of its prior financials, including its 2022 consolidated net profit from US$8.48 million to US$2.87 million.

The company published its 2023 audited financial statements on Tuesday, 226 days after it was due for submission to the Jamaica Stock Exchange (JSE). The reason for the extended delay in producing the financials was irregularities observed with Productive Business Solutions Costa Rica, S.A., its Costa Rican subsidiary. Costa Rica is PBS’s fifth-largest market by revenue as it contributed US$30.77 million in 2023 relative to the US$327.61 million generated for the entire group in 2023.

PBS operates in more than 20 markets and has over 30 subsidiaries operating across Latin America and the Caribbean. As a result, PBS has to audit these various subsidiaries, and each business has to be given a clean bill of health in order for the group’s consolidated financial statements to be approved and signed off by its auditors, PricewaterhouseCoopers SRL in Barbados.

“An internal investigation was launched by the Group, which included the commissioning of a forensic audit carried out by an independent accounting firm. Based on the investigations performed, irregularities were noted across several financial statement line items with an impact on prior periods,” the PBS audited financials stated.

The issues identified included: Unfounded journal entries affecting several financial statement line items including Contract Assets, Inventories, Long-term receivables and Trade and other receivable; and identification of unrecorded liabilities.

These errors were deemed to have had a material effect on the prior two years of reported financials for PBS. While revenue was not changed in either period, several line items on the income statement had changed. The gross profit for 2022 was restated from US$97.82 million to US$91.86 million while operating profit was adjusted from US$29.46 million to US$23.04 million. The company’s profit before tax was also adjusted from US$11.79 million to US$5.21 million, a near 50 per cent haircut.

The company’s total assets in 2022 were also restated from US$379.14 million to US$356.61 million with contract assets of US$6.85 million totally eliminated from the balance sheet. Total liabilities also moved from US$273.26 million to US$281.29 million with current liabilities adjusted from US$142.79 million to US$199.70 million. Consolidated shareholders equity also had a haircut from US$105.87 million to US$75.33 million.

“As a part of the measures taken to strengthen the controls surrounding the accounting and financial reporting process, certain individuals were terminated and a temporary management team from within the Group was put in place to oversee the accounting and financial reporting processes at PBS CR,” the audited report added.

PBS’s 2023 annual report did not include Group Chief Financial Officer Andrés Ibañez or Costa Rican General Manager Christian Sánchez. There has been no disclosure to the market about any separation of these individuals.

As a result of the extended delay in providing its consolidated audited financials, PBS breached its reporting covenants with Republic Bank Limited and First Citizens Bank Limited. Also, the restatement resulted in there being breaches of debt covenants of certain loans in 2022 and 2021 which were reclassified from non-current (to be paid more than a year later) to current (to be paid in a year).

“When you read this letter, you will be aware that our audit and thus this annual report are late. This is because we had material misstatements in our subsidiary in Costa Rica. Errors in accounting that should have been normally identified. The issues were complex, and I will not attempt to go into detail in this letter. However, in summary the transfer to shared services in this particular entity left open our company to actions that lead to these misstatements. The delay in the audit was in part in order to ensure that there were no other issues in other entities within the PBS Group that were similar. The audit for the whole group was completed ensuring that this was not the case,” said Paul B Scott, chairman of PBS in the 2023 annual report.

Scott added, “As a learning organisation we have implemented significant changes to personnel and governance to enhance the rigor in which are processes are implemented and accounted for. It is incredibly difficult to eliminate all risk but there is no doubt that with focus and intensity on the processes the risk of this reoccurring will be greatly reduced. We must ensure that the systems are adhered to, and we invest in our people to ensure that as they evolve their capacity to relate to the systems is maintained.”

Despite all these events, PBS was able to report US$327.61 million in revenue for 2023 and US$8.09 million in consolidated net profit. PBS acquired Infotrans Group Holding B.V. and subsidiaries on June 16, 2023, for US$2 million. This new business contributed US$10.26 million in revenue and US$578,000 to net profit for the period after acquisition.

PBS was also able to secure a US$126 million syndicated loan with Citibank, N.A. and several other banks on June 26 to refinance some of its debt, fund growth initiatives and support general corporate purposes. It also acquired Xerox Del Ecuador, S.A. and Xerox Del Peru, S.A. on July 1.

The company’s third-quarter report showed that it grew revenue by 66 per cent to US$120.49 million, but consolidated net profit contracted by 35 per cent to US$769,000. For the overall nine months, PBS’s revenue was up 24 per cent to US$288.39 million with consolidated net profit down 42 per cent to US$3.23 million. Total assets were US$415.18 million with shareholders’ equity at US$79.13 million.

PBS will have its annual general meeting on December 11 at 10:00 am.

The company’s annual report and quarterly report were also published on Tuesday with the company expecting to be readmitted to trading this week. All of PBS’s ordinary and preference shares were suspended from trading on July 2 due to the audited financials being submitted beyond 90 days. That meant investors could not trade the company’s shares for that period and also resulted in PBS having the second longest suspension in 2024 after iCreate Limited. Pulse Investments Limited will also be suspended from trading if it cannot submit its audited financials by November 27.

“Our journey at PBS is not linear, nor do we expect it to be. At PBS, we are focused on delivering solutions to our clients at the very highest level. We know as long as we maintain intensity around delivering these outcomes, we will continue to grow. I would like to thank, on behalf of the board, all our employees who are deeply committed towards this. In 2024, we expect the company to continue to evolve, learn and grow,” Scott closed.